Over the last decade, private credit has boomed, growing from $435 billion to $1.7 trillion. One consequence of this has been a growing marketplace for private credit secondaries. Currently, the private credit secondary market is estimated to be worth $30 billion, but it’s forecast to exceed $50 billion by 2027.

The secondary market is where private credit investors can sell their stake early. It’s natural that as allocations to private credit have increased, there is now a need for liquidity, which is provided through the secondary market. Most of it is driven by investors looking to rebalance their holdings. Another benefit is that it can potentially provide diversification to private credit investors. Some managers are now fundraising for funds dedicated to the private credit secondary market, such as Apollo Global Management and Pantheon.

There is also an analogue between the private equity secondary market and the private credit secondary market. Although the private equity secondary market is more mature and larger at $100 billion, with many more established funds in the space. According to Craig Bergstrom, managing partner and CIO of Corbin Capital Partners, “I don't think private credit secondaries will ever get to be as big as private equity secondaries. And I don't think they'll even get to be as large as private credit is in proportion to private equity because the duration is shorter.”

Finsum: A consequence of the boom in private credit is a growing and active market for secondaries. It’s evolving similarly to the secondary market in private equity and is forecast to exceed $50 billion by 2027.

In 2001, Vanguard pioneered a novel method for integrating ETFs as a share class within existing mutual funds, propelling the company to prominence in the ETF market. However, this competitive edge dissipated when the patent lapsed in May 2023, prompting a frenzied quest within the fund industry to secure regulatory approval for Vanguard’s ETF share class innovation. 

Noteworthy industry players, including Fidelity, Dimensional Fund Advisors, and Morgan Stanley, have vigorously advocated their positions to the Securities and Exchange Commission (SEC), joined by a myriad of smaller asset managers, propelled by factors such as immediate scalability, established track records, and structurally superior offerings.

Despite prior reservations expressed by the SEC regarding ETFs constructed as a share class of multi-class funds, the industry's push for ETF rule revisions has gathered steam, prompting the active involvement of leading stock exchanges. Analysts anticipate substantial market shifts with any SEC endorsement allowing fund companies to adopt Vanguard's ETF structure.

Finsum: The landscape of for ETFs is changing quickly and the race to the bottom, but regulation will be critical.

According to the study, nearly two-thirds of financial advisors state that they are primarily influenced by factors within their own practice when constructing portfolios. Conversely, these advisors are less likely to take input from their broker dealer (B/D) or custodian. The divergences between advisor channels pose challenges for asset managers in establishing their products and services effectively. 

Cerulli suggests that asset managers concentrate their distribution efforts on channels where advisors rely more on internal portfolio construction methods. Furthermore, the research highlights that advisors within the independent registered investment advisor (RIA) channel tend to construct portfolios internally, followed closely by hybrid RIAs. 

Asset managers who allocate distribution resources towards channels such as independent and hybrid RIAs, where advisors tend to make their own investment selections, may have an advantage in portfolio construction.  

Finsum: Independent RIAs help meet their clients’ needs with better portfolios.

Goldman Sachs Asset Management (GSAM) is aiming to become one of the top 5 providers of model portfolios. Currently, GSAM is the ninth largest in terms of asset managers, with model portfolio assets of $14.5 billion. Over the next decade, model portfolios are projected to have more than $11 trillion in assets in total.

According to Alexandra Wilson-Elizondo, the co-CIO of GSAM’s multi-asset solutions group, the firm’s strategy is to outgrow its competitors rather than take existing market share as model portfolio assets are projected to grow 20% annually. Model portfolios consist of off-the-shelf strategies and custom models. Demand for the latter has been robust among wealthy clients.

Increasing adoption by financial advisors is the primary growth driver for the category. By decreasing time and resources spent on investment management, advisors can add more value in areas like client service, tax planning, and estate management. 

Currently, the leading provider of model portfolios among asset managers is Blackrock, followed by Wilshire Associates, Capital Group, and Vanguard. In 2019, GSAM bought S&P Global Market Intelligence, and it acquired NextCapital Group in 2022 to build the foundations of its model portfolio business.

Finsum: Goldman Sachs is aiming to grow its model portfolio segment and become a top-five provider among asset managers. Forecasts are for the category to grow 20% annually and exceed $11 trillion by 2030. 

There is a momentous demographic turnover that reshapes the financial advisor landscape. According to Cerulli, nearly 40% of advisors will be retiring in the next decade. Currently, 60% of assets are managed by advisors who are 55 and older, while the average age of an advisor is 50. 

This reality means that older advisors need to start thinking about succession planning. Proactive and proper succession planning can also help advisors maximize the value of their practice and ensure that their clients remain in good hands. Younger advisors should be formulating a strategy to capitalize on this opportunity. 

Some key elements to successfully transition to the next generation are recruiting to replenish talent, appealing to younger investors, and scaling engagement and client service by leveraging technology. 

At current rates, there are not enough new advisors to offset retirements and attrition. Therefore, it’s imperative that practices invest in recruitment efforts to identify talent and set them up for success. This entails looking at recruits from nontraditional backgrounds who have strong people and organizational skills. 

Another important step is to gear prospecting and client service for millennials and Generation Z. This means understanding their perspective and becoming fluent with technology. Finally, advisors should be investing in technology that can help them scale personalized service to increase their capabilities and serve more clients. 

Finsum: Succession planning will be even more critical in the coming decade due to the massive retirement wave in the financial advice industry. Here are some common elements of successful succession planning.